It has been a constant debate on whether or not one should get a mortgage on a property or rent a property. For us, we believe that everyone will eventually need a mortgage at some stage in life. And the reason is quite simple:
Everyone needs to invest and you need to invest and diversify your investment.
Some people argue that why should I put my cash into mortgage when I can earn more from investing into stocks and mutual funds? It is true that the average return on investment, at least in Canada at the time of writing this article, has always been 5% or more in stocks. Which has been higher than the average interest rate on a mortgage. Index funds on the S&P 500, Nasdaq, and Dow Jones have yielded more than 5% average annual return for decades. Therefore, even for individuals who don't know much about investment in stocks, can easily invest into these index funds, which are considered very conservative options already.
Don't put all of your eggs into one basket.
That is exactly why investing into index funds is a very wise and excellent practice for anyone investing into stocks. Instead of selecting and investing into individual public companies, you invest into the entire stock index that consists of hundreds of companies. Essentially, you would be putting your eggs into hundreds of different baskets.
The stock market is just one investment vehicle.
You need to both diversify your investment vehicles and diversify your investment inside the investment vehicles. Real estate is another investment vehicle. Same goes with life insurance, as well as precious metals. Some would even argue that Pokemon or Sports cards are also an investment vehicle.
Anything that has the potential to retain and increase in value is an investment vehicle.
An example of a conservative investment portfolio could look like this:
- 20% Cash Savings
- 40% Real Estate Investment
- 20% Life Insurance
- 20% Stock Market
An example of an aggressive/growth investment portfolio could look like this:
- 10% Cash Savings
- 20% Real Estate Investment
- 10% Life Insurance
- 60% Stock Market
The people who put all of their extra cash into the stock market, even if their investment is diversified between many different companies, they still only have one investment vehicle – stock market. Therefore, there is still a chance of a total stock market crash. Which did happen multiple times in the past and affected millions of people and their investments.
Because everyone needs to invest and everyone needs to diversify their investment vehicles, investing into real estate, which often translates into getting a mortgage on a property for most people, is something that everyone needs to consider and do. After all, everyone needs a place to stay and eventually, a family to raise.
Be smart, invest, choose multiple investment vehicles, and diversify your investment within those vehicles. That has been true in the past, is true in the present, and will continue to remain true in the future.
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